Oil, gas play second fiddle to Nigeria's services sector
Nigeria's recent rebasing shows its services sector's share of GDP has dominated the country's economy, helping it surpass SA's numbers.
Nigeria leapfrogged South Africa to become Africa's largest economy, following the announcement of its rebased gross domestic product (GDP) numbers on Sunday.
The results of the anticipated exercise revealed that Nigeria's economy was about 90% larger than previously thought, reaching an estimated 80.3-trillion naira, or $509.9-billion, in 2013, according to the country's statistician general, Yemi Kale.
This is significantly larger than South Africa's own GDP output, which is estimated at around R3.46-trillion, or $328-billion.
The revision is likely to have important "psychological" implications for how foreign investors view Nigeria, as well as how they view South Africa's role on the continent, and its position as a stepping stone for investing into Africa according to experts.
Standard practice is to update GDP numbers every five years to account for changes in pricing patterns and the structure of an economy, but Nigeria's GDP numbers have not been updated since 1990.
The rebasing revealed that the structure of Nigeria's economy has changed significantly, Kale told a press conference in Abuja, the country's capital.
"It is much more diversified than we thought earlier," he said.
The country's economy has traditionally been dominated by crude oil and natural gas production. But the rebasing revealed major growth in the services sector, which now accounts for the greatest share of the country's GDP output.
The agricultural sector's share of GDP in 2013 declined from 34.69% in the old GDP series, to a forecast 21.97% in the new series. Industry saw a similar drop from 36.26% under the old series to a 25.64% forecast for 2013.
Crude oil and natural gas - a sub-sector (it's one sector not two) of industry - was the biggest loser. It showed a decline from 32.43% in 2013 under the old series, to a much lower 14.4% share.
Meanwhile, the services sector's share of GDP went from around 29% in 2013 under the old series to a forecast 51.89% in the new series.
The rebasing also revealed the emergence of new growth sectors, Kale noted, although these came off a very low base. They include the electricity, gas, steam and air-conditioning supply sectors, which grew at a rate of 44% in 2013; as well as Nigeria's sound recording and music production industry that incorporates Nollywood, which grew over 33% in 2013.
The rebasing exercise also saw a drop in the West African state's debt ratio, with its debt to GDP ratio falling from 19% to 11%. Under the new data series, the country's GDP per capita rose to from $1 555, in 2012 to $2 689.
The leap in figures was more than many analysts expected, said Roelof Horne, portfolio manager for Investec Asset Management. But a similar exercise conducted by Ghana in 2010 generated a 60% increase in the country's GDP, so the result Nigera revealed was "not entirely out of the ballpark", he said.
Two significant shifts took place in the services sector since Nigeria's last round of GDP rebasing in 1990, he pointed out. The first was the growth of the cellphone industry. Nigeria, by 2002, was relatively late in issuing cellphone licenses he said. But in line with other African countries, the number of cellphone subscribers rose dramatically. Just the revenue growth that companies such as local telecoms giant MTN generated from their Nigeria operations indicated that this sector was not measured properly before, noted Horne.
Secondly, the Nigeria banking sector, severely fragmented in the past, experienced significant amounts of consolidation and growth after increased capital requirements were introduced. The growth in this capital, along with other factors such as the growth in people employed, meant financial services would have contributed to the growth in the service sector, he noted.
"They are now clearly a significantly bigger economy than South Africa," he said. But this would not in itself make Nigeria a better investment destination, said Horne.
The greatest impact was likely to be a psychological one he noted. "It will make people view the country differently."
Shifts in relations
This could also affect South Africa's position as the "go-to" economy on the continent, noted Horne, as well as South Africa's role in global bodies such as the G20, where it is the only African country.
The shift in figures such as the growth in GDP per capita – which has now effectively doubled – would be important to companies who watched these sorts of "triggers" before deciding to enter an economy. But the GDP change was not necessarily all good news, Horne argued.
A big plus for the Nigerian economy prior to the rebasing, had been its current account surplus. This was likely to be halved as a result of the rebasing, which would look less attractive, said Horne.
In addition, the country's tax revenue has been dominated by the oil sector. These figures were now also likely to be negatively affected, Horne added, highlighting the reliance the country has placed on oil revenue, and the inefficiencies of its tax system.
Kale said that further refinement of the numbers was still ongoing, and as a result some changes to the estimates could be expected. But this was likely to be within a 5% margin for error in line with internationally accepted standards, he said.